Oyo Hotels showing dramatic growth in China

China-based investor Tencent is in talks to lead a $300-500-million round of funding for the hotel brand Oyo Rooms. 
Oyo 101 Click Hotel, Dubai, UAE. Image: Oyo Rooms

Just a year after expanding its presence to China, Indian hospitality chain Oyo Hotels and Homes has 180,000 franchised and leased rooms and more than 4,000 hotels under under franchise, manchise (a hybrid of franchise and management) and lease agreements across the country, making it one of China's top-five hotel chains.

Gurugram-based (and Softbank-backed, to the tune of $1 billion) Oyo began operating in China in November 2017, and now has properties in major cities like Hangzhou, Xian, Nanjing, Guangzhou, Chengdu, Shenzhen, Xiamen and Kunming.

Rapid Rise

“During our last round of funding, we had committed approximately $600 million to the China market, of which $300 million will be used for renovation and infrastructure investments,” said Oyo Hotels and Homes Founder and Group CEO Ritesh Agarwal. He noted additional investment will help the company drive the next wave of growth in China, which is already ahead of India, he claimed.

“This is a testament to the acceptance Oyo has got in China, the relevance of our business model in the market and the opportunity ahead,” he said. “China’s burgeoning $150 billion hotel industry will continue surging ahead despite being fragmented. It enjoys a strong influx of both domestic and international tourists. With this economic boom, there’s a steep rise in the middle-income group where more than 500 million Chinese locals scout for good-quality accommodation at affordable prices.” Oyo's platform of “predictability, standardization, quality and affordability” will help attract both guests and investors, he added.

The company aims to sustain its pace of expansion in China, which it currently estimates to be at 30,000 rooms per month.

Most properties in Oyo's network are run on a franchise model by local entrepreneurs, who are required to have their properties refurbished to Oyo’s specifications and pay a commission on each booking. The majority have a few dozen rooms and the company lets owners franchise, lease and renovate hotels in between three and 14 days, making it easy to join the network.

In order to attract both guests and owners to its platform, Oyo launched six Oyo Skill Institutes in Shenzhen, Xian and Suzhou, with more in the pipeline. These institutes, the company said, will help "fuel the hospitality ecosystem" in China. In total, the company has has trained 924 people in 76 cities with the help of two regional training managers and eight internal trainers.

The company has dealt with the complexities of the Chinese market by giving wide autonomy to its local managers, Agarwal told the Financial Times. “We operate like a Chinese company, not a global company operating in China,” he said. “If you go to one of our hotel owners in China and ask them where Oyo is from, they’ll say it’s Chinese.”

Global Growth

After Malaysia and Nepal, China is Oyo’s third overseas market. The company currently has more than 12,000 franchised or leased hotels and over 3,000 homes as a part of its chain. 

It also launched operations into the United Arab Emirates in October, and is expanding into the UK and European markets. In September, Agarwal said he planned to spend $53 million to launch the company in 10 British cities via a smartphone-based service for franchise owners and guests. 

Agarwal said his company will select hotels from among Britain’s 35,000-40,000 independent operators, offering redesign, property management and marketing to help them compete. “By focusing on the customer and small-asset owners, we tend to out-compete some of our more traditional hotel-chain rivals,” said Agarwal.

The company will use a franchise model to expand, offering redesign, property management and marketing and is to target the unbranded independent market in the UK, which is has been targeted by brands such as Premier Inn.